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Gulf States’ Defence Spending to Hit Record High

The Gulf Cooperation Council (GCC) member states are forecast to
spend over USD100 billion on their defence capabilities for the
first time next year, with increasing budgets in Saudi Arabia and
the United Arab Emirates (UAE) driving growth between 2018 and
2027.

Across the Gulf states comprising the GCC (Saudi Arabia, UAE,
Kuwait, Qatar, Bahrain and Oman), defence budgets are expected to
reach record highs next year, with increases in spending primarily
focused on modernising and expanding military force structure and
improving readiness in response to continuing regional
instability.

"The 6 percent growth in defence expenditure in the GCC that
we've seen this year is expected to slow, but growth rates of 3 to
4 percent a year are sustainable over the next decade - meaning
that defence spending is likely to hit a record USD100 billion next
year," said Craig Caffrey, principal defence budgets analyst at
Jane's by IHS Markit. "If we see any significant increases in oil
prices, we'll probably see further growth - or at the very least,
more procurement activity."

Jane's Defence Budgets data says that despite predicted
fluctuations in the growth rate, defence spending will continue to
increase over the next five years, reaching around USD117 billion
by 2023. In total, the states of the GCC are expected to spend
around USD86 billion on defence equipment over the next five
years.

GCC defence budgets have risen as a percentage of GDP over
recent years, but even more significantly are also rising as a
share of government spending; highlighting the importance placed on
enhancing military capabilities.

A major driving factor in defence procurement plans has been the
increase in operational activity by GCC militaries in places such
as Iraq, Libya, Syria and Yemen. Such actions have led to an
increase in spending on the development of expeditionary and
intelligence gathering capabilities, as well as the bolstering of
combat aircraft fleets.

Can the GCC escape North American export
domination?

Despite accounting for just 5 percent of global defence spending
the GCC is responsible for almost a quarter of all imports of
defence equipment - importing assets worth approximately USD56
billion between 2014 and 2018.

North America and Europe provide about 95 percent of all
equipment acquired by Gulf states. The US alone has accounted for
about half of all exports to the GCC in the last five years.
However, despite the prevalence of equipment from these sources,
other suppliers - ranging from Australia to China and Turkey - are
increasing their market presence.

"The modernisation and operational requirements of some
militaries in the region are seeing some governments turn to
alternative suppliers for equipment," said Charles Forrester,
senior defence industry analyst at Jane's by IHS Markit.

"The downturn in oil prices in 2014 and 2015 made cost an
important factor, while export controls from some key suppliers
have prevented the transfer of desired equipment," Forrester said.
"Similarly, operators in the region are becoming increasingly
conscious of the cost of procurements and through-life support
costs of equipment and systems."

Jane's Markets Forecast has identified USD48 billion in
announced requirements and USD32 billion in unannounced
opportunities in the GCC region over the next decade.

Self-sufficiency ambitions

Countries in the region are also continuing to leverage large
defence procurements to improve domestic military and non-military
technological capabilities through offset programmes. Most notably,
Saudi Arabia aims to increase domestic defence procurement spending
from 2 percent to 50 percent by 2030 as part of the country's
Vision 2030 goals.

Both the UAE and Saudi Arabia aim to improve their own defence
industrial bases to improve self-sufficiency and ensure the
security of supply for their own militaries. They also intend to
leverage this capability to boost exports of locally made defence
equipment, with the UAE already exporting its Nimr protected
vehicle to countries including Algeria and Turkmenistan.

"Efforts to expand indigenous production over the next decade
will need to be in partnership with foreign suppliers," Forrester
said. "Requirements and supplier relationships may be shifting, but
the overall strength of the market remains unchanged."